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Trump victory undeniably negative for RE — in the long run

As the US emerges from one of the most tumultuous election seasons in memory, its renewables sector awoke to the unthinkable — Donald Trump emerging victorious as the 45th President of the United States.

In the near term, the initial response of global markets is one of panic, as at the time of the writing this article, Dow Jones futures were down by over 800 points. Global renewables stocks are very likely to dive in response to the Trump victory, but are certain to recover quickly, much like what occurred following the turmoil of Brexit.

Nevertheless, the impact to the US renewables sector is undeniably negative, but not necessarily in the near term. Conversely, the surprise win by Trump is likely to prompt an even more substantial order surge in the US to capitalize on existing Production Tax Credit (PTC) incentives, resulting in a more pronounced peak in demand through 2020 for the US wind market. This, of course, assumes that existing support mechanisms are maintained, and MAKE does not expect existing PTC/ITC (Investment Tax Credit for the solar industry) legislation will be impacted by the Trump win, given that elimination of the incentives would require overcoming a Democratic filibuster.

The long-term health of the renewables sector is a different story altogether. President-elect Trump has gone on record numerous times to decry the science behind climate change and is not expected to support any renewables initiatives.

The primary concern for the US renewables sector is the fate of longer-term support mechanisms such as the Clean Power Plan (CPP) and the Paris Agreement. Trump has stated that he would “cancel” the Paris agreement, which would seriously undermine the US’s global position regarding climate change. If the US — the world’s second-largest emitter of greenhouse gases — pulls out of the agreement, it may cause a domino effect that could see other leading emitters, such as China, also abandoning the treaty.

It has been reported that the first weeks of the Trump presidency will likely be focused on rescinding and implementing a wide variety of executive orders. Unfortunately, this is very likely to include the CPP, as it was included as an executive order under Barack Obama’s Climate Action Plan. The ongoing litigation in the US Court of Appeals and expected appeal to the Supreme Court would therefore be moot, and upwards of 55% of wind energy demand from 2020-30 could be eliminated.

The wild card is gauging the reaction of US utilities such as Southern Company, which has only recently engaged in the renewables sector, largely to mitigate the risk of carbon legislation such as the CPP.

MAKE forecasts that the buildout of wind and solar projects through 2022 is expected to bring the US largely into compliance with the Clean Power Plan as it is currently constituted. Utilities may be tempted to scale back their renewable procurement plans in response to that market dynamic and introduce a harder post-PTC landing for the US wind energy market in the 2022 timeframe. However, the Trump experiment is a risky one, as his campaign was built upon a number of audacious promises, including the construction of a border wall, the mass deportation of undocumented aliens, and the abandonment of a number of free-trade agreements. Any early indications that his presidency is failing could reinstate carbon policy uncertainty, especially if the failings are such that a single-term presidency is expected. Utilities must keep this in mind as they account for the impact of the 2016 elections.

In summary, the Trump victory is forecasted to have a muted impact on demand in the US over the next four to five years. The primary concern for renewable-energy stakeholders is long-term policy uncertainty, as the prospects for an extension of the PTC/ITC under a Republican-led Congress and administration is nil, and the CPP is expected to be eliminated.

The importance of reducing wind energy’s levelised cost of energy has therefore become even more amplified, as the safety net of policy support is pulled away.

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Trump victory undeniably negative for RE — in the long run

As the US emerges from one of the most tumultuous election seasons in memory, its renewables sector awoke to the unthinkable — Donald Trump emerging victorious as the 45th President of the United States.

In the near term, the initial response of global markets is one of panic, as at the time of the writing this article, Dow Jones futures were down by over 800 points. Global renewables stocks are very likely to dive in response to the Trump victory, but are certain to recover quickly, much like what occurred following the turmoil of Brexit.

Nevertheless, the impact to the US renewables sector is undeniably negative, but not necessarily in the near term. Conversely, the surprise win by Trump is likely to prompt an even more substantial order surge in the US to capitalize on existing Production Tax Credit (PTC) incentives, resulting in a more pronounced peak in demand through 2020 for the US wind market. This, of course, assumes that existing support mechanisms are maintained, and MAKE does not expect existing PTC/ITC (Investment Tax Credit for the solar industry) legislation will be impacted by the Trump win, given that elimination of the incentives would require overcoming a Democratic filibuster.

The long-term health of the renewables sector is a different story altogether. President-elect Trump has gone on record numerous times to decry the science behind climate change and is not expected to support any renewables initiatives.

The primary concern for the US renewables sector is the fate of longer-term support mechanisms such as the Clean Power Plan (CPP) and the Paris Agreement. Trump has stated that he would “cancel” the Paris agreement, which would seriously undermine the US’s global position regarding climate change. If the US — the world’s second-largest emitter of greenhouse gases — pulls out of the agreement, it may cause a domino effect that could see other leading emitters, such as China, also abandoning the treaty.

It has been reported that the first weeks of the Trump presidency will likely be focused on rescinding and implementing a wide variety of executive orders. Unfortunately, this is very likely to include the CPP, as it was included as an executive order under Barack Obama’s Climate Action Plan. The ongoing litigation in the US Court of Appeals and expected appeal to the Supreme Court would therefore be moot, and upwards of 55% of wind energy demand from 2020-30 could be eliminated.

The wild card is gauging the reaction of US utilities such as Southern Company, which has only recently engaged in the renewables sector, largely to mitigate the risk of carbon legislation such as the CPP.

MAKE forecasts that the buildout of wind and solar projects through 2022 is expected to bring the US largely into compliance with the Clean Power Plan as it is currently constituted. Utilities may be tempted to scale back their renewable procurement plans in response to that market dynamic and introduce a harder post-PTC landing for the US wind energy market in the 2022 timeframe. However, the Trump experiment is a risky one, as his campaign was built upon a number of audacious promises, including the construction of a border wall, the mass deportation of undocumented aliens, and the abandonment of a number of free-trade agreements. Any early indications that his presidency is failing could reinstate carbon policy uncertainty, especially if the failings are such that a single-term presidency is expected. Utilities must keep this in mind as they account for the impact of the 2016 elections.

In summary, the Trump victory is forecasted to have a muted impact on demand in the US over the next four to five years. The primary concern for renewable-energy stakeholders is long-term policy uncertainty, as the prospects for an extension of the PTC/ITC under a Republican-led Congress and administration is nil, and the CPP is expected to be eliminated.

The importance of reducing wind energy’s levelised cost of energy has therefore become even more amplified, as the safety net of policy support is pulled away.